Forex Today: US Dollar kicks off December on wrong footing, ISM PMI, Powell eyed

Here is what you need to know on Friday, December 1:

Risk sentiment remains tepid on Friday, as Asian stocks traded mostly lower, despite the Wall Street rally overnight. China’s Caixin Manufacturing PMI unexpectedly expanded to 50.7 in November but failed to impress markets, as factory activity in other key regions of Asia remained sluggish on weak global demand.

The US S&P 500 futures stay muted, as investors weigh the US Federal Reserve (Fed) interest rate cut expectations. Thursday’s US Core Personal Consumption Expenditures (PCE) Price index rose at an annual pace of 3.0% in October, cooling off from a three-month run of 3.4% readings. On a monthly basis, the Core PCE inflation showed no growth in the reported month, missing a forecast of a 0.1% increase while down from the 0.4% print registered in September.

New York Fed Bank President John Williams said on Thursday, “in balancing the risks of too-high inflation and a weaker economy, and based on what I know now, my assessment is that we are at, or near, the peak level of the target range of the federal funds rate.”

Falling inflation in the US strengthened dovish Fed expectations while the dovish commentary from Fed officials also played its part. The US Dollar has returned to the red zone alongside the US Treasury bond yields, snapping the previous rebound fuelled by the end-of-the-month short covering.

Markets continue to price a 48% chance of a rate cut in March next year compared with a 22% chance last week, the CME Group’s FedWatch tool showed on Friday.

At the time of writing, the US Dollar Index is holding the lower ground near 103.30, consolidating the weekly losses while the benchmark 10-year US Treasury bond yields are licking their wounds near 4.33%.

All eyes now remain on Fed Chair Jerome Powell’s dual appearance later in American trading. Powell is due to speak at 16 GMT and 19 GMT at two separate events organized by Spelman College in Georgia. His words will be closely scrutinized for fresh hints on the Bank’s path forward on interest rates. It will be Powell’s last public appearance before the December 12-13 policy meeting. The Fed enters its ‘blackout period’ on Saturday.

Besides, the US ISM Manufacturing PMI data will be also published in the US session, providing fresh US Dollar valuations.

Most major currencies are supported by the renewed US Dollar weakness. The Euro (EUR) seems to be the strongest heading to the European opening bells. EUR/USD is holding its recovery momentum above 1.0900, having hit fresh six-day lows at 1.0879 on Wednesday after European Central Bank’s (ECB) interest rate cut bets ramped on softer Euro area inflation data. Traders will look forward to the final Eurozone Manufacturing PMI later in the day ahead of ECB President Christine Lagarde’s speech.

GBP/USD is rebounding toward 1.2650, finding a floor amid hawkish BoE commentary. BoE’s hawkish dissenter, Megan Greene, said on Thursday, “…the policy may have to be restrictive for an extended period of time in order return inflation to 2% over the medium term.” The UK S&P Global final Manufacturing PMI data is awaited but is unlikely to have any impact on the Pound Sterling.

Antipodeans fail to find any inspiration from strong Chinese Caixin PMI data and a broadly weaker US Dollar, as a cautious market mood underwhelms. AUD/USD is challenging the 0.6600 level, reversing an early advance to 0.6630 while NZD/USD is flattish near 0.6150.

The Japanese Yen is partly reversing its weekly gain against the US Dollar, as USD/JPY is back above 148.00. USD/CAD is licking its wounds near 1.3550, awaiting the top-tier Canadian employment data.

WTI is recovering ground to near $76 after the OPEC+ decision disappointment.  Saudi Arabia, Russia and other members of OPEC+ agreed to voluntary output cuts for the first quarter of 2024. However, Angola rejected a new output quota handed to it by the alliance.  

Gold price is heading back toward $2,050, underpinned by dovish Fed expectations.